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The debt ceiling is destructive, duplicative and stupid

If you’ve been reading or watching the news, you know that America came into its own self imposed debt ceiling limit of $3.381 trillion on Thursday, January 19. It’s a shame it didn’t happen on February 2nd, because Groundhog Day is pretty much the perfect way to mark the occasion. Here we go again!

On the day the limit was reached, Treasury Secretary Janet Yellen like his predecessor Steve Mnuchinwrote to letter to Congress, explaining that the US Treasury would begin taking “extraordinary measures” to do so expenditure commitments previously authorized by law.

That’s what’s so frustrating about the debt ceiling. When the limit is reached, it forces Congress to do so reaffirm his willingness to spend what is now legally bound to spend.

Imagine you walk into a restaurant with a group of friends. Ask for a table for six and follow the hostess to a booth. Everyone studies the menu and then places an order. A draft beer and a bacon cheeseburger. Pinot Noir and a medium rare steak. A glass of chardonnay and red snapper. Mushroom risotto and a diet coke. An old-fashioned grilled pork chop. Chicken Alfredo and a glass of Sauvignon Blanc. The waiter takes the order to the kitchen and the chefs start preparing the meals. By ordering food and drinks, you agree to pay the tab. Now suppose everyone gets up and leaves, stiffing the restaurant instead of paying the bill.

As I said inside this interview with Ali Velshi Last week, House Republicans threatened to toughen up a bunch of people in government already agreed to pay.

If Congress clamps down on bondholders, health care providers, military personnel, civilian employees, etc., it’s not because the federal government “ran out of money” or “ran out of credit card national”. Anyone who speaks in these terms is ill-informed, lazy or opportunistic.

For a currency-issuing government like the United States of America, there is no spending limit. as i said Mehdi Hasan during a interview last week, the debt limit is nothing like the limit on our personal credit cards.

Mastercard and American Express have set the limit for credit cards in my wallet. It’s a good thing they do, because as a currency user, I might be tempted to rack up more debt than I can afford to pay. As lenders, companies like Visa and Mastercard impose credit limits to reduce the amount of bad debt they have to write off.

The federal government’s finances don’t work like a household’s. Like the issuer of the currencythe US government can never “rone without money,” nor can he face invoices that sell (in USD) that he cannot allow to pay. The debt ceiling is not imposed by any lender. The government imposes it on the government. There is not applicable analogy in the household budget.

Like former Fed chairman Alan Greenspan he said Congress 2003:

[Y]You may want to reconsider whether the statutory government debt limit is a useful device. As a matter of arithmetic, the debt ceiling is redundant or incompatible with the revenue and spending streams you specify when you legislate a budget.

He’s not the only former Fed chairman to propose eliminating the debt ceiling. During his tenure, Ben Bernanke said“It would be nice if we didn’t have him.”

And at least four former secretaries of the Treasury– Bob Rubin, Larry Summers, Paul O’Neill and Tim Geithner, agree. And so does the former president of the Fed and current secretary of the Treasury, Janet Yellen, who referred to on the debt ceiling as “very destructive” and indicated that he is in favor of abolishing it.

Who else agrees? Most economists (including many conservatives), budget experts at centrist think tanks and the rating agency Moody’s.

Today, the US is one of only two countries in the world with a debt ceiling. The other is Denmark, but they don’t armen it like we do in the US. And even if they did, a default on Danish government bonds would not cause the kind of chaos in the global financial system that a default on the world’s most important financial instrument, US Treasuries, would.

The Treasury Department can apparently rely on “extraordinary measures” to avoid denying payments until early June. Beyond June, in order to avoid stiff no oneCongress will have to raise (or suspend) the debt ceiling, or the Treasury Department will have to find a way around it.

Unfortunately, you can rule out a debt ceiling suspension. House Republicans want their pound of flesh in exchange for raising, not suspending, the cap.

As Rep. James Comer (R-KY) recently explained, House Republicans will only agree to raise the debt ceiling in exchange for federal spending cuts. Otherwise, he says, his party “it won’t move.” Meanwhile, White House press secretary Karine Jean-Pierre he insists that the administration “will not negotiate on the debt ceiling.” They want a clean vote to lift it.

So it’s groundhog day. Again.

Every time we do this, the risk of total failure seems to increase. I think it is fair to say that this Congress is different. But I think it’s still very unlikely that we’ll see a voluntary default by the US government. One way or another, Congress will almost certainly do what it has always done in the past, which is to vote to raise the debt limit. But since there is at least some chance, however small, that Congress will refuse to act, lawyers (and others) will continue to seek manners to avoid the flaw by ending the groundhog’s game once and for all.


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